Henry Ford in Reverse

A radical management decision at the turn of the last century created the modern economy we have enjoyed for the last 80 years.  Henry Ford's decision in 1914 to pay line workers the outrageous sum of $5 per day planted the seeds of today's Consumer based economy. 

Prior to Ford's action, people were labor, cost, class or race object or a responsibility of others.  They were not customers or even consumers. Consumers on the other hand were objects, targets or ‘suckers’ that were a source of sales.  “Buyer beware” was the ethos of customer service and customer relationship management for most.   

Ford, others and trade unions drove higher worker wages that created demand and the modern consumer economy.  Tim Worstall pointed out that there was more to the wage increase than the legend in his Forbes article.  That is less of the point than the observation that overall labor wages rose because new technologies raised labor productivity creating a re-enforcing spiral.  That changed with the advent of information technology a change accelerating in the digital age.  Here is what I mean:

As Erik Brynjolfsson and Andrew McAfee point out in their book “Race Against the Machine”, information based technologies shift productivity returns in the economy.  Labor productivity growth is flat while capital productivity is growing.  Growth goes to the most productive resources creating a situation where returns increasingly flow to capital and not wages.  That creates the apparent paradox we see today – earnings growth without wage or employment growth.

Henry Ford in reverse.

In reverse in the sense that once returns flow to capital rather than labor, the consumer economy slows down driven by declining wage generated wealth.  Keeping up requires consuming more disposable income and personal wealth whose returns flow to companies and capital, not recycled back to consumers in the form of wages.  Growth can still happen from new consumer markets in China, India, etc., and tapping into generational wealth.  But these growth sources can only sustain consumerism for some time. At the same time, the persistent search to find new returns on capital generate investment spikes, bubbles and instability. Going in reverse describes a consumer economy unwinding through waves to capital-intensive information and technology productivity. 

It was not supposed to work this way. We expected a leisure society created by technology and epitomized by the brave new world of the 1950’s and early 1960’s.  Think of George Jetson, who went to work, pushed a button, then when home.  Alternatively, the movie Wall-E shows humanity as ultimate consumers, epitomized by Captain B.McCrea  and his passengers too out of shape to walk.

Technology is a boon to the world, raising standards of living, expectations and creating a diverse and vibrant world.  I am not suggesting reverting to the past, simplifying or decluttering – all forms of going in reverse.

We need to re-imagine the role of information and technology in the economy.  Automation and integration form the fundamentals of technology, described by the mantra of better, faster, cheaper.  Technology’s emphasis on faster and cheaper drives efficiency as the standard for success.  It is too simplistic to say that we need to focus on better and replace cost efficiency with customer effectiveness. But its not a bad place to start in a world where:

·      Supply > demand when trade, logistics and information give global reach to local markets.

·      Information levels the playing field between customers/consumers and companies

·      Technology eliminates operational barriers to entry for new entrants and storming adjacent markets

We can see current digital technologies such as analytics, mobility, smart phones, social, sensing, 3-D printing, etc. and a range of future technologies changing the productivity-return equation.

I do not have an answer. 

I only have a question – how do we continue to advance and avoid going in reverse? 

In other words – how does technology support sustainable and positive growth for all? 

Henry Ford’s simple, but radical idea, was unwelcome at the time. Many thought it would bankrupt the company, destroy business, and change the world.  It did.  But rather than leading to ruin it ushered in an unprecedented age of economic growth, rising standards of living and played a part in creating the world we have today with all of its strengths and challenges.

Technology and information have changed in the 100 years since 1914, so should our thinking about the economy and how we grow into the future.  Certainly the answer is not in reverting to the past.

What do you think?